2024 was a bummer year for Occidental Petroleum (OXY 1.13%) -- the oil and gas stock lost 17.3% value in the year, according to data provided by S&P Global Market Intelligence. Occidental was, in fact, one of the worst-performing large-cap energy stocks of 2024, significantly lagging the S&P 500 index, which gained 23% in the year.
Despite Warren Buffett's holding company, Berkshire Hathaway, consistently buying shares of Occidental Petroleum throughout 2024, investors remained on the sidelines as Occidental's debt rose while crude oil prices fell. Occidental Petroleum, however, delivered promising numbers last quarter and looks like a top oil stock to buy for 2025.
Occidental stock took the biggest hit in the second half of 2024, which is also when the company made a big acquisition. Occidental acquired CrownRock for nearly $12 billion in August last year. While the purchase price included CrownRock's existing debt of $1.2 billion, Occidental funded the acquisition with almost $9 billion of new debt.
That significantly drove Occidental's debt higher. Meanwhile, crude oil prices fell in the latter half of 2024. The dual factor spooked investors, as they expected lower oil prices to hit Occidental's bottom line and cash flows even as its interest expense rose.
Occidental, however, committed to cutting down debt and focusing on shareholder returns, but investors weren't convinced. Occidental's performance in the third quarter, however, should reignite investor interest in the stock.
Occidental targeted a debt reduction of $4.5 billion within a year of acquiring CrownRock. Remarkably, the oil and gas producer achieved 90% of its short-term reduction goal within just about two months of the acquisition.
Meanwhile, Occidental also generated strong cash flows in the third quarter, driven by CrownRock assets, which expanded its footprint significantly in the Permian and Midland basins. Occidental expects the acquisition to add $1 billion in free cash flow within the first year at a West Texas Intermediate (WTI) crude oil price of around $70 per barrel.
Occidental's production is on the rise, and management remains committed to paring debt further in 2025 regardless of where oil prices are. Meanwhile, Occidental is also investing in other businesses, including OxyChem and carbon capture and storage, both of which have strong growth catalysts.
With Occidental Petroleum also likely to raise its dividend yet again in 2025 -- it increased its dividend by 22% in 2024 -- the stock looks like a solid potential turnaround story for 2025.
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